Coronavirus sends CEE economies into tailspin in first quarter

PRAGUE (Reuters) - Central and east European economies fell as much as 5% on a quarterly basis to start 2020 though some managed a last gasp of growth as the coronavirus forced lockdowns in March and put the region on course to a deep contraction this year.

FILE PHOTO: A general view of an empty National Theatre is seen in Prague, as the Czech government bans events hosting more than 100 people to contain the spread of the new coronavirus disease (COVID-19), Czech Republic, March 10, 2020. REUTERS/David W Cerny

The virus outbreak will undo several years of solid growth in a region with economies highly tuned to the car industry and exports and which has outpaced richer western Europe.

With the novel coronavirus striking in March, first-quarter figures showed the outbreak’s initial impact but were uneven.

The Czech and Slovak economies sank 3.6% and 5.4% quarter-on-quarter, respectively, hit harder than regional neighbours due to a slowdown in growth seen even before the crisis.

The Czech Republic’s drop was the largest on record going back to 1996 and was almost as bad as in the euro zone, showing its dependence on trade there. Slovakia, a euro zone member, was among the hardest hit in the currency bloc.

In Hungary, the economy contracted on a quarterly basis for the first time since 2016, shrinking 0.4%. Poland, the region’s biggest economy, fell 0.5% quarter-on-quarter.

Romania and Bulgaria expanded 0.3% on a quarterly basis.

“The batch of Q1 GDP data for Central and Eastern Europe shows that the region’s economies were in freefall at the end of March after lockdown measures were imposed,” Capital Economics economist Liam Peach said in a note.

Analysts see probable double-digit declines in the second quarter.

The European Commission has forecast the region contracting by 4.3%-7.2% overall in 2020 before a similar rebound. Much will depend on Germany, Europe’s largest economy and a key trade partner which shrank 2.2% in the first quarter.

But the threat of lockdowns will remain if a second wave of COVID-19 infections comes. Most countries are only now reopening after the first wave and not all car plants are back running.

Jakub Seidler, ING’s chief economist in Prague, estimated Czech measures and factory shutdowns caused a 30% economic dive in the second half of March alone.

Hungarian Prime Minister Viktor Orban said on Friday he hoped manufacturing would return to its pre-crisis tempo from June.

But with unemployment ticking up around the region, consumers may be loath to spend money, meaning that state support to avoid a wave of mass layoffs could be crucial.

Poland, the only regional economy to avoid recession in the 2009 financial crisis, has announced direct and indirect aid worth over 300 billion zlotys ($71.24 billion) to mitigate the blow to its businesses from lockdowns.

Andrzej Kaminski, an economist at Bank Millennium, said this support and the fact tourism has a lower share in the economy could help Poland weather this crisis better than others.